The daily transaction volume of the Bitcoin network is rapidly climbing up to its all-time high at around 400,000. The increase in the volume of BTC suggests that the overall interest in the asset is rising.
On February 6, CryptoMeNow previously reported that the transaction volume of the Bitcoin network tripled within 10 months despite suffering the worst bear market to date.
Bitcoin Volume is an Important Indicator For Market Recovery
Last month, Woobull.com creator Willy Woo said that the technical setup of BTC had pointed towards a bullish mid-term movement. But, the on-chain volume of BTC, which refers to the volume of transactions on the first layer of the Bitcoin blockchain, was relatively low.
The analyst explained that in the past two months, the on-chain volume of the dominant cryptocurrency spiked as investors moved funds from wallets to exchanges to liquidate their holdings.
Despite the technical setup that suggests bullishness is possible, there’s not a lot on-chain volume to fuel a prolonged up move. What we saw in the last 7 weeks was a spike of on-chain volume driven by volatility, coins moving to exchanges to trade. pic.twitter.com/MVxlN8ttO1
— Willy Woo (@woonomic) January 5, 2019
As such, subsequent to the plunge in the price of BTC from $6,000 to $3,000, both the trading and transaction volume of BTC noticeably declined.
To suggest that a proper bottom has been established and an accumulation phase has begun, Woo emphasized that fundamental indicators such as the transaction volume of BTC would have to back the technical indicators.
“The initial volume spike false signalled a faster detox and an earlier end to the bear market, but in fact it was a volatility side effect. That move from $6k to $3k created immense trade volume, but it was in no way a signal that accumulation volume had begun.”
Currently, it is difficult to conclude that the bottom of BTC has been established in the low $3,000 range.
Although Bitcoin and the rest of the cryptocurrency market have demonstrated a high level of stability in the past month, no key resistance levels have been breached.
But, if BTC and the cryptocurrency market continue to demonstrate stability in a low range, it could suggest the beginning of a consolidation phase.
The movement from a consolidation phase to a long-term rally will largely depend on the daily volume of BTC. Hence, it is a crucial indicator of accumulation and growing user activity on the blockchain that may serve as a signal for a full-fledged recovery.
Timing is Weird
The rapid increase in the on-chain volume of BTC comes in a period during which the usage of the Lightning Network and batching has significantly risen.
The Lightning Network is a second layer scaling solution that enables near-zero fee and instantaneous payments on the Bitcoin blockchain network. If the usage of Lightning increases, it would lead to a decline in the on-chain volume of BTC.
Lightning Network capacity is up 36% since the #LightningTorch was created. pic.twitter.com/lnTY2nfTTr
— BitcoinVisuals.com ⚡️ (@BitcoinVisuals) February 17, 2019
Batching is a method widely employed by exchanges to broadcast many transactions as one big transaction to ease the pressure on the Bitcoin blockchain network.
Both solutions drop the transaction volume of BTC by grouping a large number of transactions into one. Yet, the on-chain volume of BTC has continuously increased since mid-2018.
Featured Photo by Sam Mgrdichian on Unsplash